Protect Your Company and Client Relationships With This ‘Second Chance’ Contract Clause

Contracts are the cornerstone of business relationships. From office leases to vendor agreements, contracts establish the rules, responsibilities, and expectations that guide the relationships between the parties involved. Well-drafted contracts avoid disputes and misunderstandings, but they can’t always prevent unexpected issues from happening.

That's where a "right to cure" provision comes into play. A "right to cure" provision is a clause in a contract that gives one or both parties an opportunity to make things right if they breach the contract before the other party can take legal action. In essence, it gives the breaching party a second chance to make things right.

But, a “right to cure” clause does more good for your business than just avoiding a lawsuit.

Protection From a Loss of Revenue and Reputation

One of the most obvious benefits of having a "right to cure" provision in your business contracts is the protection it offers your business against a loss of revenue. When a contract is breached by either party, it can result in financial setbacks for everyone involved. But if you’re the breaching party, it could mean losing the revenue you would have earned from that project entirely. Without a “right to cure” provision, the other party can simply walk away from the agreement if you breach the contract for some reason.

Even if you would never intentionally breach a contract, unforeseen circumstances can crop up, causing a breach.

For example, imagine you own a boutique home design studio. You agree to fulfill an order of custom tilework for a client by a certain date but your tile supplier is having an issue importing their latest shipment of material, causing you to miss your deadline.

Without a “right to cure” provision in your agreement that gives you extra time to make things right, your client could walk away from the agreement altogether, leaving you without the revenue you were expecting, and possibly with extra tiles you may not be able to resell to someone else.

By giving your company the chance to correct a breach like this, you increase the likelihood of receiving the agreed-upon payment or services.

Even more valuable than revenue is your business's reputation. One negative experience with a breach of contract can tarnish your reputation and make clients and contractors less likely to work with you in the future. Including a “right to cure” provision in your contracts gives you the opportunity to fix any issues and finish the job at a high standard. By doing so, you will not only protect your company from losing income but will help protect it from the inevitable loss of reputation that occurs if you can’t deliver on your agreement.

Preventing Delays

Picture this scenario: You're in the middle of an exciting project that promises substantial returns for your business. Everything is going smoothly until your contractor shows up with the wrong materials, causing a breach. Without a "right to cure" provision, this breach could cost your company time and money searching for a new contractor or could easily escalate into a full-blown legal battle, causing delays that could stretch for months, if not years.

The longer the project stalls, the more resources are wasted and the farther you drift from your goals. A "right to cure" provision steps in as the hero of the story, offering a lifeline to bring the project back on track swiftly.

Take the construction industry as an example. Delays in construction projects can snowball into massive financial losses due to extended labor costs, materials going to waste, and the domino effect it has on other interconnected projects.

With a "right to cure" provision in place, the responsible party has a chance to address the issue promptly, (and is motivated to do so because they want to get paid for the project) allowing construction to proceed as planned and minimizing the financial impact on all involved.

Making Your Company More Desirable to Work With

When potential partners or clients are evaluating whether to work with your company, they consider not only your products or services but also the terms of your contracts. If potential clients are interested in working with you because of your great service and friendly personality but then see rigid and inflexible contracts, they may raise an eyebrow - or back out of the deal completely.

Including a "right to cure" provision in your contracts promotes good faith and conveys the message that you believe in the integrity and intentions of your business partners, and are willing to give them grace with mistakes or setbacks. Companies that are perceived as reasonable and willing to work through challenges are often preferred partners.

Consider the case of a software development company seeking new clients. In a competitive market, the presence of a "right to cure" provision in their contracts can set them apart. It communicates that they are open to addressing challenges in a constructive manner rather than resorting to legal battles at the first sign of trouble.

Legal Guidance for Your Contracts and Beyond

A “right to cure" provision is a powerful tool in safeguarding your business. But it's not just a contract clause; it's a testament to your commitment to fairness, integrity, and success.

As your business advisor, we know that building a successful business goes beyond legal documents and revenue – it’s about building a brand of trustworthiness, fairness, and excellent service that attracts and keeps clients and business partners for years to come – and that starts with a strong foundation for your company.

If you want to create a business that’s built to last and a legal team that is part of your team, the first step is to meet with us for a Business breakthrough Session. We’ll review your company’s Legal, Insurance, Financial, and Tax systems to make sure your company has the foundation it needs to succeed.

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This article is a service of Savone Law, PC. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices with your business throughout life and in the event of your death. We also offer a Business Review Session, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

The content is believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.